Saturday, December 22, 2007

In most all cases, benefits and costs used to evaluate the efficiency of a policy are measured in dollar terms. Dollar prices are often used in this estimation because they reveal how people value scarce resources. This is what may be referred to as ‘use value.’ Economists also recognize ‘non-use value,’ or the value or benefit that people conceive from simply knowing that resources exist. ( ex: you may get non-use value from simply knowing that bald eagles have not become extinct etc. regardless if you ever benefit from their existence in some direct financial way.) Of course, these values are much more difficult to quantify.

Without market prices, economists often rely on survey data or data provided by the physical and natural sciences. Both revealed ‘use-value’ and approximated ‘non-use’ value are converted into monetary terms to provide a common unit of measure. This is not to say that we can put a price on everything, and this does not give greater weight to ‘markets vs. nature,’ it just provides a common unit of measure. This is no different than converting from meters to feet etc.

In the end, if total benefits translated into monetary terms exceed costs, ( the policy produces positive net benefits) then the policy is said to have a favorable cost/benefit analysis, at least from a pareto-potential perspective.

This does not mean that the policy should be undertaken, just that it may be favored over an alternative with negative net benefits. There are plenty of other criteria that must be considered such as constitutionality, distribution, rent seeking, etc. ( see ‘Public Choice’ under selected topics)

Thursday, December 20, 2007

In earlier posts ( Discretionary Monetary Policy I-III) I presented a brief overview of a hybrid monetarist/Austrian view of bubbles and business cycles. This explained the bursting of the ‘agriculture bubble’ in the 70’s, the tech bubble in the 90’s, and I related it to recent sub-prime mortgage issues.

Certainly these ideas are not my own, but just my application of certain ideas from macroeconomics, and many people may disagree, or be in denial about an infallible fed. But, there are many who offer corroborating analysis. As Gerald P. O’driscoll (former vice president of the Dallas Fed) notes in his Cato Institute article ‘Our Subprime Fed,’

“ The Fed cut the fed funds rate sharply after the bursting of the stock market bubble in March 2000…..the Fed cut rates far too long, fueling not only a vigorous economic expansion but also the housing bubble.”

Wayne Angell, a former Fed governor and personal advisor to Dick Cheney is quoted in a recent Fortune article;

"The Fed was extremely easy from 2002 to 2005. It was not desirable or necessary, and it set off this huge real estate boom.”

So, the idea that easy, discretionary monetary policy by the Federal Reserve played a role in recent sub-prime mortgage troubles certainly has merit among some prominent economists.

However, one thing cautioned as far back as my undergraduate coursework in money and banking, was the role that financial innovation and technological change may play when modeling the macro economy or predicting the effects of monetary policy. In the 90’s people were touting that information technology, debit cards, ATM’s etc were changing the way we must view money. In addition, IT made workers more productive, allowing expanded economic growth for a long period of time with very low unemployment without ‘overheating’ or triggering inflation. Of course, the tech bubble soon burst after that.

In ‘The Bear Flu and How it Spread,’ a recent Business Week article explains the role of financial innovation in the collapse of two Bear Stearns hedge funds. It describes a tweaked version of collateralized debt obligations ( CDO’s) that they tagged ‘Kilo’s. They were designed to encourage money market funds to get involved in the mortgage market by having other large banks such as Citigroup and Bank of America guarantee the investments. To the money market manager, there were decreased risks, and better returns from mortgage products vs. the traditional short term investments used historically. The big banks received fees and more fund sources for ultimately securitizing their mortgages, and Bear Stearns was profiting from selling these new innovative investment products.

Of course, with this model being repeated throughout the real estate and financial sector of the economy, a downturn could create problems, and it apparently did. One question of course, is what played a larger role in the grand scheme of things, easy money or financial innovation? It is hard to know. One thing is true, the market distortions and noise created by discretionary monetary policy make it hard to determine any thing for certain.

Wednesday, December 19, 2007

"The combination of quantitative training and applied work makes agricultural economics graduates an extremely well-prepared source of employees for private industry. That's why American Express has hired over 80 agricultural economists since 1990."- David Edwards, Vice President-International Risk Management, American Express

While in graduate school, and deciding upon the traditional course work in economic theory vs agricultural and applied economics, my advanced micro theory instructor ( from a course taken at the University of Kentucky) posed the following scenario. He said

‘ You can choose to be a consumer of economics, or you can be a producer of economics.’

Phrased differently, he was asking, at what level of mathematical abstraction do you want to work. Do you want to use mathematical tools to model and solve problems of economic significance,( a consumer of economics) or do you want to develop the mathematical tools to be used by other economists to build models and solve problems ( a producer of economics).

Perhaps it is also a question of basic vs. applied research. I want to see application and results. I want answers to questions now. I don’t want to wait 10+ years for my ideas to either catch on or be forgotten.

To quote, from Johns Hopkins University’s applied economics program home page:

“Economic analysis is no longer relegated to academicians and a small number of PhD-trained specialists. Instead, economics has become an increasingly ubiquitous as well as rapidly changing line of inquiry that requires people who are skilled in analyzing and interpreting economic data, and then using it to effect decisions ………Advances in computing and the greater availability of timely data through the Internet have created an arena which demands skilled statistical analysis, guided by economic reasoning and modeling.”

Ultimately I chose a graduate program in Agriculture with an emphasis in Agricultural Economics. I had some trepidation at first, thinking that it may have a limited focus. Actually, it lead to encounters with the same theoretical and quantitative tools presented in traditional graduate work in economics, and also provided additional opportunities for application (such as natural resource and energy economics or biotechnology). At my institution, I was able to take additional courses in crop science and genetics to tailor a secondary emphasis in Agronomy. I also had the opportunity to take courses in applied economics and finance from the MBA program.

To quote from the American Agricultural Economics Association:

“Nearly one in five jobs in the United States is in food and fiber production and distribution. Fewer than three percent of the people involved in the agricultural industries actually work on the farm. Graduates in agricultural and applied economics or agribusiness work in a variety of institutions applying their knowledge of economics and business skills related to food production, rural development and natural resources”

Monday, December 17, 2007

The ongoing theme for some of my recent posts has been tools used by economists in studying the environment. In this post I am going to discuss the concept of efficiency and methods of cost benefit analysis.

Pareto Efficiency: A state is pareto efficient if it is impossible to make someone better off without harming another. In other words, if you can only make someone better off by making someone else worse off, you should do nothing. This state of rest is ‘pareto efficient.’

Cost Benefit Analysis: Cost benefit analysis is based largely on ‘pareto –potential' efficiency. In this case the benefits of a policy must exceed the costs imposed on society to achieve those benefits. It is pareto-potential because, if the benefits generated by a policy exceed the costs, beneficiaries could theoretically or potentially compensate others who may be harmed by the policy.

In the next post, I will discuss how costs and benefits are measured, an important exercise for public policy analysis.

Wednesday, December 12, 2007

If we are concerned with economic growth, we must carefully consider how pollution may affect growth. Can we quantify a critical amount of pollution that will be detrimental if no corrective measures are taken?

In many cases, environmental problems are the unintentional consequences of buying and selling goods. This typically occurs when these consequences are not captured in the price of the goods exchanged. Whenever the full cost of one’s behavior is not captured by a price by which an environmental trade-off can be valued, a negative externality or commons problem exists. ( see my public choice article- Our commons, Our Choice).

In many cases, without private property rights or markets to establish prices, economists must rely on evidence from the sciences in order to approximate the value of an externality. They may use this evidence to model the biological consequences of different policy options and the relevant costs and benefits. They use these models to approximate the dollar amount of a negative externality and attempt to tax or structure a system of property rights in such a way that the externality may be internalized. ( see the previous Public Choice post on the ‘Coase Theorem’) When this is done, and individuals are paying the full cost of their behavior which may be causing damage to the environment, an optimal solution may be achieved.

It is in this way that we capture both the positive and negative effects of economic growth for long term sustainability.

Friday, November 30, 2007

When resources become scarce in market economies with relevant price systems, prices increase. This price increase which reflects the increase in scarcity leads to land, capital, labor, and natural resources being used in different proportions. The higher price motivates users to reduce consumption or increase the use of substitutes. It motivates producers to increase the supply of resources if possible, or to invest in technology that better utilizes resources or leads to substitutes. The result of higher prices, substitution, and technological change is that scarce resources are used more efficiently or less intensely. It is then possible for economic growth to continue in the face of diminishing or degrading of natural resources.

Drastic changes in regulations or tax policy that stifle this process could leave us without the technological means to deal with future scarcity. This is something to be considered when dealing with climate change policy.

Wednesday, November 28, 2007

I've just recently wrapped up a series of posts related to public choice economics. Public choice is useful because the analytical framework it provides is necessary for understanding agricultural and natural resource issues in the context of government decision making.

The next series of posts will focus on theory related to environmental economics. They will focus on how we deal with scarcity of natural resources, pollution, etc.

Saturday, November 24, 2007

This past Thanksgiving, Michael Maniates wrote a dismal piece in the Washington Post stating that “We need to be looking at fundamental change in our energy, transportation and agricultural systems rather than technological tweaking on the margins.” He was referring to ecological disaster that may ensue if we fail to take drastic actions today.

In the last 50 years, agricultural productivity has doubled. The average corn yield in 1960 was near 55 bushels per acre, today it is nearly 160 bushels per acre. We get about 185lbs more from every harvested cow than we did forty years ago. Technology is not only making us more productive, but also more ‘green,' addressing many of the concerns Mr. Maniates may have about ecological disaster.

1.04 million fewer pounds of insecticide are applied each year as a result of biotech Bt cotton alone. With Bt cotton, 4 million gallons of fuel and 93.7 million gallons of water are saved on the farm each year from fewer insecticide applications. Roundup Ready technology has allowed for glyphosate herbicide to substitute for 7.2 million pounds of other chemicals that are more toxic and persistent in the environment.

We’ve come a long way since the first Thanksgiving harvest. Perhaps major change will come in other areas, but in agriculture it will be the marginal tweaking of biotechnology that paves the way toward a sustainable future and provides us with tools for dealing with climate change.

Wednesday, November 21, 2007

Thanksgiving was not about the Pilgrims embracing diversity and thanking the Indians for helping them survive. The celebration was about thanking God for the abundance which ultimately resulted from a move away from socialism ( imposed on them by the Colony’s Sponsors) to free market capitalism.

As governor William Bradford commented on the dreadful conditions of 1622:

" . . . the young men . . . did repine that they should spend their time and strength to work for other men's wives and children without any recompense. The strong . . . had not more in division . . . than he that was weak and not able to do a quarter the other could; this was thought injustice. The aged and graver men to be ranked and equalized in labors and victuals, clothes, etc . . . thought it some indignity and disrespect unto them. And the men's wives to be commanded to do service for other men, as dressing their meat, washing their clothes, etc., they deemed it a kind of slavery, neither could many husbands well brook it."

"For this community of property (so far as it went) was found to breed much confusion and discontentment and retard much employment that would have been to their benefit and comfort . . . all being to have alike, and all to do alike . . . if it did not cut off those relations that God hath set amongst men, yet it did at least much diminish and take off the mutual respects that should be preserved amongst them."

In the Spring of 1623, they moved away from Socialism and embraced the incentives of Private Property and Capitalism:

"All their victuals were spent . . . no supply was heard of, neither knew they when they might expect any. So they began to think how they might raise as much corn as they could, and obtain a better crop than they had done, that they might not still thus languish in misery. At length . . . the Governor (with the advice of the chiefest among them) gave way that they should set corn every man for his own particular, and in that regard trust to themselves. . . . And so assigned to every family a parcel of land . . . "

"This had very good success, for it made all hands very industrious, so as much more corn was planted than otherwise would have been by any means the Governor or any other could use, and saved him a great deal of trouble, and gave far better content. The women now went willingly into the field, and took their little ones with them to set corn, which before would allege weakness and inability, whom to have compelled would have been thought great tyranny and oppression."

Thanksgiving is therefore about freedom, private property and the unrestrained ability to worship and show thanksgiving.

Tuesday, November 13, 2007

With all of the problems previously mentioned such as voting paradoxes and the results of the median voter theorem, democracy is not without its problems.

Our founders may not have spoke in these terms, but they did anticipate problems. Knowing that voting can be an imprecise method of determining the will of the people and government is limited in what it can do to promote the good of the society, the things that we vote for ( at the state, local, and federal levels) should be limited. Changes should come slowly, and interpretations of our laws should be consistant.

As James Madison Stated:

"It will be of little avail to the people that the laws are made by men of their own choice, if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood; if they be repealed or revised before they are promulgated, or undergo such incessant changes that no man who knows what the law is today can guess what is will be tomorrow."-- James Madison, Federalist no. 62, February 27, 1788

By specifically enumerating the powers of government, the constitution provides a means for mitigating these circumstances. Once we abandon this concept, democracy becomes less effective. As Thomas Jefferson stated:

"I consider the foundation of the Constitution as laid on this ground that 'all powers not delegated to the United States, by the Constitution, nor prohibited by it to the states, are reserved to the states or to the people.' To take a single step beyond the boundaries thus specially drawn around the powers of Congress, is to take possession of a boundless field of power not longer susceptible of any definition."-- Thomas Jefferson, Opinion on the Constitutionality of a National Bank, February 15, 1791

Public Choice Theory certainly provides a solid basis for limited government, and it is one that our founders would have agreed with.

Saturday, November 10, 2007

Many of my recent posts have probably seemed a little more formal than my normal analysis of the biotech industry, agriculture, and natural resource issues. However, I think they highlight important tools and concepts. Because the agriculture industry and the pattern of natural resource use can be heavily influenced by government policy, it is important to be able to analyze government behavior in a way that is precise. The tools and concepts developed by public choice economists allow us to do this. To review, some of the tools/concepts that I have recently discussed include the following:

Tuesday, November 06, 2007

In a past post I discussed the scenario described as the ‘tragedy of the commons’ which characterizes many environmental problems, especially problems of overuse and resource depletion. To review, the tragedy of the commons basically occurs when ‘individuals have unlimited access to resources in absence of well defined property rights ( Sobell and Leeson, 2006). Without property rights, there can be no transfer of rights and no market to establish a price by which environmental tradeoffs can be valued. The problem is the failure of government to define and enforce property rights.

The ‘tragedy of the anti-commons’ is another type of government failure. This occurs ‘when too many owners hold (such) rights of exclusion’ (Heller, 1998). In this case resources are subject to underuse. This can also be described as a ‘tragedy of political commons’ when too many individuals have veto power in decision making processes ( Leeson, 2006). And note, related to other posts regarding public choice theory, these individuals are acting in their own interest, face ineffective incentive structures, and likely have limited information. When they actually do make a decision, it is likely a poor one.

A prime example of the tragedy of the anticommons and resource under use is the government’s response to hurricane Katrina. Post 9-11, FEMA was placed under Homeland Security, adding an additional layer of bureaucracy to the decision making process. There were further problems at the local level. An example given in a 2006 article in the journal Public Choice describes an incident where one out of state sheriff complied with all of the necessary procedures and paper work that would enable him to direct his resources for a relief effort and was never able to help. A second sheriffs department ignored procedure and was able to bring 9 truckloads of supplies and 33 deputies to the scene.

We also see that in the private sector, where this problem is less of an issue, companies like Wal-Mart, Home Depot, and State Farm insurance were well prepared and on the scene where they were needed.

Because of the tragedy of the anticommons, resources that could have been used in the relief effort were underutilized.

Wednesday, October 31, 2007

We’ve often heard the statement ‘good enough for government work’ or have heard the criticism that government workers are incompetent. The truth is, many government employees are highly trained and competent professionals. Unfortunately they don’t always have the correct information or the incentive to act on that information to achieve results. When they do take action, it may not be an action that uses resources in the most effective manner. In this situation, limited resources become more limiting. Government institutions and bureaucracies often generate bad information and terrible incentives.

With markets, partial bits of decentralized information that are possessed by multitudes are coordinated to produce results. Prices provide information and incentives to act on that information. As explained in the article on Public Choice theory, government decision makers have less incentive to take appropriate actions.

Instead of relying on information in prices, which reflect the tradeoffs made by millions of individuals making decisions based on their own well being and first hand information, the involvement of government shrinks the pool of knowledge to just a few ‘experts’ with limited information.

This is the great ‘knowledge problem’ that government decision makers face. It is the reasoning that economists such as F.A. Hayek give for the collapse of the Soviet Union, and why so many free market economists are critical of expanding the role of government.

SOURCES: The Use of Knowledge in SocietyF.A. HayekThe American Economic Review Vol 35 No 4 (Sept 1945) p. 519-530

Tuesday, October 23, 2007

In a previous post ‘OUR COMMONS, OUR CHOICE’, I cited the analysis of the economist Ronald Coase. The discussion was related to environmental pollution.

Traditionally when it comes to enviromental pollution, the general philosophy was that ‘the polluter pays’. A factory polluting the air or water should pay for the damages that are caused. In a much simpler case, if you build a house next to me and you don’t like the smell of livestock waste coming from my property, the traditional philosphy would hold that you could have the government stop my operation.

The insight that Coase brought was 1) yes it is true that my operation is harming you via air pollution. 2) however, in stopping me via government or legal intervention ( or taxing my waste production) you are harming me.

Coase says that the issue is that nonone owns the air that sourrounds my livestock operation and your home. There then follows a dispute over how the air should be used- to absorb livestock odor, or to provide a scent free atmosphere in your back yard. Whenever the cost of one’s behavior is not factored into a price at which a choice can be valued, I can harm you without compensating you for it. ( i.e. an externality exists)

However, if I own rights to the air, then I can choose to pollute the air. If you own rights to the air, then you can prevent me from polluting it. If noone owns the air, then it is first come first served or winner takes all.

That is not the end of the story though. What Coase emphasizes is that if I own the rights to pollute, you can pay me to limit my pollution i.e. buy those rights from me. I can then use the proceeds to alter my livestock nutrition, genetics, and management to reduce the odor my operation is causing. On the other hand, if you own the rights to pollute I can purchase those rights from you, or invest in technology that will allow me to continue my operation without violating your rights. I will do which ever is most optimal. This can be accomplished without major goevernemnt regulation, or the arbitrary imposition of a tax.

The assignment of property rights and the potential for bargaining results in behavior that is changed or altered to account for the negative impact our choices have on others. This is the essence of what is known as the ‘Coase Theorem”

Thursday, October 18, 2007

In the last entry on voting paradoxes, I mentioned that things are different if preferences are single peaked. Let’s look at another scenario.

voter X: A B C

voter Y : C A B

voter Z : C B A

In this case, no matter what order is undertaken, C always ends up being the law that is enacted. These preferences are single peaked. ( if you graph them, you will find that for each individual they will have a top choice ( a peak point), and as you move further away from that choice ( in the A-B-C spectrum) they prefer the other choices less and less. In the previous example, voter Y did not have single peaked preferences and that is what caused the cycling or order dependent outcomes.

With single peaked preferences there is a new problem. With single peaked preferences, the median point of the preference distribution will elicit the most votes. Only those laws or candidates with a centrist twist will get the majority of the votes. Only those voters with centrist views will be happy, and it makes it very difficult for candidates to be elected if they want to bring about major reforms. This phenomenon is referred to as the ‘median voter theorem.’

Friday, October 12, 2007

BROCHURE: http://www.sdcma.org/GMFoodsBrochure.pdfI've linked to this before , but there are so many things that it highlights, that I think this deserves another post.

7 THINGS TO KNOW ABOUT GM FOODS

1. If you worry about food safety you should know that GM foods are as safe as other foods and that GM crops are grown with fewer pesticide applications than traditional crops.

2. If you treasure butterflies you need to know that pesticides used in conventional farming are far worse than GM crops for butterflies.

3. If you have allergies you need to know that GM technology can eliminate food allergens and that all GM crops are extensively tested to make sure that no new allergens are introduced. In addition,GM crops are being created in which the major allergens have been eliminated.

4. If you are worried about cancer you should take note of the fact that 99.99 percent of the carcinogens in your food supply are natural chemicals that humans have been eating for thousands of years. However, GM technology provides the means of increasing levels of phytoestrogens, isoflavones,carotenoids, and other antioxidants known to prevent cancer.

5. If you are a woman and worried about getting sufficient iron you should know that genetic modification can increase the iron content of cereals and has eliminated chemicals (phytic acid) that prevent iron absorption.

6. If you have doubts about the government’s approval of GM crops you need to know that extensive testing and a long approval process accompany every GM crop introduction. In the United States, three agencies regulate these crops.

7. If you care about the environment you may want to know that GM foods can make a significant contribution to alleviating the negative impact that agriculture has on our environment.

Thursday, October 04, 2007

The Clean Water Authority Restoration Act ( House Bill H.R.2421 S.1870) attempts to remove the requirement that bodies of water be ‘navigable’ to be federally regulated. Unfortunately, many don’t think critically about environmental problems. As economist F.A. Hayek has pointed out to us, the requisite knowledge for solving many of our problems seldom presents itself in complete integrated form. Instead, it is dispersed among multitudes of individuals and circumstances.

Technology has allowed for many environmental problems in Agriculture to be internalized. The use of global positioning systems and biotechnology are examples of how markets have utilized the dispersed knowledge of individuals acting in their own interest to help mitigate environmental problems.

Family farms make up 98% of all farms, and small farms account for 70% of farm real estate. These operations will be affected most by this legislation. They currently manage the resources that would fall under the jurisdiction of the Clean Water Act should the CWARA pass. These producers have specialized knowledge with regards to producing food in an environmentally sustainable manner. If the CWARA is passed, it could substitute the limited knowledge of a few experts for the well-coordinated knowledge and experience of multitudes of farmers. Is there any reason for us to believe that this would necessarily be better for the environment?

Tuesday, October 02, 2007

"Recently, it was reported that the Agriculture and Cooperatives Ministry was going to seek cabinet approval for a lifting of the ban on open-field trials of transgenic crops. Assuredly, Greenpeace was not amused and reacted by dumping tons of papayas at the entrance to the ministry.”

This reminds me of the following quote:

"...a band of scientific illiterates who use Gestapo tactics..."- Greenpeace Co-Founder, Patric Moore, describing his former organization.

The funny thing is, the local people were very excited to get ‘free’ GM papayas and took care of the clean up.

Friday, September 28, 2007

“Hardly a day has gone by this summer without opponents of GM maize - both environmental campaigners and small farmers - invading fields and trampling or cutting down crops. The protesters, led by the small- farmers' leader, José Bové, claim a citizens' right to destroy crops which, they say, threaten ecological calamity and the subjection of farmers to the whims of agro-industrial, multinational companies.” …. Belfast Telegraph Monday, August 27, 2007

Thursday, September 20, 2007

Many are making claims (perhaps as a marketing technique to increase profits) that milk produced from cows containing rbST is less healthy than conventionally produced milk. Milk from cows given supplemental bST contains no more bST than milk from cows not given the supplement, so the hormone itself is not a concern.

It is true however, that milk from cows that have been administered supplemental rbST contains higher levels of IGF-1 ( insulin growth factor-1). Research indicates that this level of increase is small.

In fact, the normal variation in naturally occurring IGF-1 levels among cows is much greater than this difference. Due to natural variation, it is just as likely that you will find a random organic cow that has much higher levels of IGF-1 than a random cow treated with rbST. With that said, should we be concerned with IGF-1 anyway?

Quote: “The amount of IGF-1 in milk is insignificant compared to the amount already produced in our bodies every day,” he asserts. “We swallow it in our saliva, and the amount we swallow daily is equal to the amount of IGF-1 in 95 quarts of milk. The amount produced in our whole body every day is equal the amount in 3,000 quarts of milk.”

Bauman further explains—and the American Cancer Society concurs—that there is no cause-and-effect chain linking bST, high levels of IGF-1, and cancer. “In fact, elevated levels are actually to be expected [when cancer is present] because IGF-1 is involved the turnover and repair of cells, including tumor cells.”

*Dale Bauman, professor of nutritional science and of animal science at Cornell University

Friday, September 14, 2007

I usually like to write my own posts, but this excerpt from a brochure (link: http://www.sdcma.org/GMFoodsBrochure.pdfprovided my the Sandiego Center for Molecular Agricultue is very interesting and tells a story about biotechnology that everyone can relate to.

"Dad, are there any genes on my plate?" my 14-year-old daughter asked.What ifyour child asked you this? An opinion survey showed that 70 percent of thepeople have the mistaken idea that ordinary food does not contain genes,whereas GM food does. Rather than explain to my daughter that every bite offood on her plate has billions of genes, I told her a story.

"In the mountains high above Cristobal de las Casas in Chiapas, Luis andJimena Rodriguez tend their small field of corn and beans.They are ‘organic’farmers because they don’t have enough money to buy fertilizers or pesticides.After they bring in the corn harvest, they store the ears in a large corn crib thatcovers the entire back wall of their one-room house. It’s the safest place to storethe corn.This room also has their bed and the four kids sleep on the floor. Afterthe harvest is in, Luis goes to town to buy some pesticide to fumigate the corninside his house. In the house his corn is safe from rain, rodents, and thieves, butnot from insects. If he does not fumigate, the weevils will eat the stored corn. Ifhe does not fumigate, he will have more weevils than corn kernels in sixmonths’ time. Indeed, each female weevil lays about 100 eggs, and after the larvaehatch, they burrow into the seeds. After thirty-five days mature insectsemerge and the cycle begins again. Half of those insects are females, so justmultiply 50 by 50 by 50 by 50 by 50 and figure out how many that is," I said tomy daughter.

"More than 5 million," she answered, "all coming from two weevils."

"Now suppose that the corn was genetically modified with a Bt gene to killthose weevils, the parents and children wouldn’t have to sleep in those pesticidefumes," I said. "Don’t you think those children would benefit from havingsome genes on their plates?"

Monday, September 10, 2007

What is rbST? rbST is recombinantly (lab) produced bovine somatotropin. This hormone is given supplementally by dairy producers to increase milk production in their herds. Supplemental rbST helps increase the efficiency of conversion of feed to milk in the cow's body. Producers of all sizes and types are able to benefit from this as it increases milk production per cow by about 10% or more.

How is this good for the environment? --- It requires fewer resources to produce more milk.

Less feed, less waste, less land, less energy, less water, less erosion, less pollution, less methane, more Milk!

It is a testament of environmental stewardship practiced by the American farmer. It also is another example among many that I have provided to demonstrate how embracing modern science ( biotechnology) is more sustainable and resource friendly than many other trends in food and popular culture today.

Thursday, September 06, 2007

Dennis Avery of the Hudson Institute writes a pretty interesting op-ed regarding organic farming in today's Star Tribune. One of the more important considerations is the upcoming farm bill. Organic growers are already asking for funding components, and special relief could be on a future 'wish list.'

Quote: "Otherwise, the public is being set up to make all kinds of "emergency" payments to organic farmers who had been preparing to sell their produce for "organic premiums" on the high-priced shelves of Whole Foods Markets. ........ With the higher yields of conventional farms, we can leave the steep hillsides for wildlife habitat. Shouldn't that be our environmental goal?"

Not to mention the benefits of biotech crops that dwarf both conventional and organic food when it comes to sustainability.

Wednesday, September 05, 2007

‘CINCINNATI, Ohio – August 1, 2007 – The Kroger Co. (NYSE:KR) announced today it will complete the transition of milk it processes and sells in its stores to a certified rBST-free supply by February 2008.’

This press release says it all. Kroger is no longer going to buy milk from producers that use rbST in their herds.

This is very disappointing from an environmental stewardship perspective. Because supplementing with rbST increases milk production per cow by about 10%, we are able to devote fewer resources to milk production when it is used. Using fewer resources means a smaller environmental footprint on a per gallon of milk basis. And, it does this with no effects to animal or human health.

While rbST is not the solution to all of our environmental and world hunger problems, it is this sort of technological change that is necessary to feed an increasing population and to deal with problems like global warming.

It is Kroger’s duty to respond to consumer preferences. This could backfire in the long term. As consumers discover the health and environmental benefits of modern science and biotechnology on the farm, they will likely become more interested in these products. The massive adoption of zero trans-fat foods is one example. These products could not have been developed without advancements in plant breeding and genetic tools.

Unfortunately, discontinuing the use of rbST may send a signal to consumers that rbST and other beneficial biotechnologies are bad for the environment, and bad for human health. Lack of consumer demand for these life and environment enhancing products may lead to less interest, investment, and less R&D. Even worse, rent seeking businesses and politicians may use this sentiment to build support for increased regulatory scrutiny. The long term effects of this could leave us less prepared to meet future ecological challenges.

Tuesday, September 04, 2007

While the cattle cycle should be in an expansion phase, it looks like at this point many people are finding themselves with little choice but to downsize. There are many options for dealing with drought conditions. Early weaning, sale, creepfeeding, or feeding hay earlier than normal.

Feeding is becoming less and less of an option. Not only is demand for hay up, but supply is down for the same reasons: drought. Fewer cuttings. A roll of hay that may have sold for $20 may now go for $70-$100. Higher prices are required to bring supply in with demand and that supply might have to come form greater distances or at greater costs than normal. Higher corn prices also make the breakeven price for feeders increase, In other words the price that feedyards are willing to pay is going to be less.

According to a recent article in a local newspaper, weekly cattle sales at the KY-TN livestock market in Guthrie have went from an average of 1500 head to 3000.

Friday, August 31, 2007

Corn is over $3 bushel compared to an average of about $2 for the last few years. Soybeans are over $8.50 per bushel vs. an average of about $6.00 for the last few years. While prices are up, and good marketing will pay off for many producers, many others may be facing yield problems as a result of drought conditions.

SOYBEANS: The recent dry weather will be deleterious to those plants that were stressed during the flowering and pod fill stages. Flower and pod abortions will likely result. For those already in grain fill, pods will be lighter of may have fewer beans.

CORN: Corn has had many obstacles this year. After planning early we had a late freeze. Frost typically will not hurt corn at less than V4 stage, but there were some worries about germination with cold ground temperatures. Early planted corn may have made it through critical pollination stage but the heat and drought was pretty bad when it came to grain fill. Ears may not be as full, and test weights will likely be much lighter. The dry conditions will force the plant to draw moisture and nutrients from the stalk if it can’t get all that is required from the parched soil. ( notice the quick browning we’ve seen in the last couple of weeks). This will greatly affect the physiology of the plant when it comes time for harvest, and could result in more loss due to harvest conditions.

Thursday, August 30, 2007

The fed has already taken action by lowering the discount rate. We will see if further liquidity is provided in September with a lowering of the Fed Funds target.

Many are opposed to this on the grounds that we should let the markets ‘sort things out.’ Others think that we should maintain a focus on controlling inflation.

It was not unfettered markets that lead to these things ( see previous entries). At this point unfettered markets will call for a correction, which could be devastating to the economy. They could lead to a recession or at least massive losses in the financial and real estate sector.

Since this correction would be very much the consequence of Fed action,( once again the boom/bust result of discretionary monetary policy previously discussed) should the fed use their ‘discretion’ to help cover up their mistake? If they do will we not expect to see another bubble in some other sector in 5 more years? Or, regardless of inflation or expectations, are we experiencing a monetary contraction that calls for fed action to provide liquidity?

These are the questions we have to ask, and they illustrate the uncertainly and instability that we live with in the face of discretionary monetary policy.

Friday, August 24, 2007

In a previous post I presented a brief overview of a hybrid monetarist/Austrian view of bubbles and business cycles. This explained the bursting of the ‘agriculture bubble’ in the 70’s. Similar logic would also explain the tech bubble in the 90’s.

The current issue is the recent disruption in the housing market and the sub-prime lending ‘meltdown’ as they are calling it.

By keeping interest rates artificially low for so long- via discretionary monetary policy- resources were devoted to housing at a level that is not supported by fundamentals.

In addition, with low interest rates, the lenders were able to cast their nets much deeper and much wider, getting a large applicant pool with risk characteristics that were unprecedented. Many financial institutions felt that should the house of cards fall, the fed would come to the rescue with liquidity. For this reason risks were taken that otherwise would have been avoided ( this is referred to as a ‘moral hazard’ problem).

After the true fundamentals of the housing market began to materialize, and the bad risks presented themselves with defaults and late payments, chaos ensued.

Tuesday, August 21, 2007

In the previous post, I noted that the miscalculations that result from discretionary monetary policy may have resulted in many of the economic crisis we have experienced this century.

With regards to agriculture, the macroeconomic linkages are very important. In the 1970’s expansionary monetary policy led to inflation. This was initially reflected in higher commodity prices and the appreciation of land values. These conditions and easy credit made it possible for many farmers to expand and invest in their operations.Later, when the fed became worried about inflation the direction of monetary policy changed. Interest rates increased and the farm sector suffered with record foreclosures in the late 70’s and 80’s. The agriculture ‘bubble’ had burst.

This was discretionary monetary policy at its worst. Economists at the time believed there was a trade off between inflation and employment-i.e. economic bliss. It turned out that this was only a temporary phenomenon, that once realized, resulted in a crash.

Friday, August 17, 2007

Many economists agree that in the short run, an increase or decrease in the money supply has real effects on the economy. That’s how the fed raises and lowers the fed funds rate, buy buying and selling bonds and utilizing printed money to manipulate the money supply in such a way that the fed funds rate (determined by overnight borrowing between banks) remains at it’s target level.

So, if the federal reserve wants to try to stimulate economic activity, at least in the short run it can inject liquidity into the market by lowering its targeted fed funds rate. This is why many people agree that the fed should be able to conduct discretionary monetary policy. When markets are volatile the fed's action can calm tensions.

The problem is that the tensions that the fed may be trying to calm are a symptom of problems created by previous discretionary monetary episodes. The general consensus of the Austrian and Monetarist/Rational Expectations views of monetary policy (admitting in substance they actually differ in many ways) is that expanding the money supply when not fully anticipated can lead to an artificial expansion. Decisions are made based on conditions in the credit market that may not be supported by the true fundamentals of the market. I.e. credit is cheaper than it should be. People take on riskier projects, leveraging increases, and if it is anticipated that the fed may intervene when problems ensue, they take on more risks than otherwise. This creates a moral hazard and adverse selection problem, and a series of bad ‘mal-investments.’

Later, when there are problems with inflation, or risky plans start to fall through, this house of cards built on miscalculated expectations and easy credit begins to fall. It is expected that the Federal Reserve will take action to alleviate concerns at this point. However it is often the case that the fed will have inflation concerns and be reluctant to act. A monetary contraction may follow with a recession. Many economists believe that this ‘boom and bust’ scenario is characteristic of discretionary monetary policy and that most of the recessions (including the great depression in the 30’s) we have had are a direct result.

Tuesday, August 14, 2007

I’ve previously discussed one issue with government decision-making, being type-two error bias.The next issue I would like to introduce is the arbitrariness of putting decisions to vote. Let’s look at a particular voting scenario to illustrate this.

VOTER X: A >B >C

VOTER Y: C> A> B

VOTER Z: B> C >A

If the voters were voting on this issue, voter X would prefer law A over law B and law B over law C. In shorthand – A > B > C. To summarize all of the choices of the voters we see that 2/3 of the voters have preference A > B, 2/3 of the voters have preference B > C, but when voting A vs. C, 2/3 have preference C > A.

See if you follow the application of this. If we have two elections and the first is made between policy B and C, then B will win (2/3 of the voters have preference B > C). If this is followed by a second election A vs. B (Because C was eliminated in the first election) then A will be the law that ultimately passes by majority rule.

Now if the order is changed, in which the first election is between A and B, A will win (because 2/3 of the voters rank A > B). Then in the second election when A goes against C, C will be the law that passes by majority rule (again because 2/3 of the voters have preference C > A).

So when voting on these policies, the process becomes arbitrary. The outcome depends on the order of the vote, so a cycling of choices ensues. According to public choice economist Gordon Tullock, any outcome can be obtained in majority voting by at least one voting method. There is nothing magical and there is no ‘truth’ in the outcome just because it was reached by majority rule. Majorities can be irrational and dangerous. The exception to this is if preferences are single peaked. I will present this in a separate entry, because it presents problems of its own.

Thursday, August 09, 2007

Often times, when it comes to environmental protection or any other issue of social interest, government intervention is justified on the basis that markets are dominated by businesses and wealthy individuals that are motivated by profit and greed. As a result, their incentives are perverse, and their actions will not be in the best interest to society. Laws and regulations must therefore be implemented to curb their behavior, and achieve a responsible outcome.

The problem with this logic is that for probably close to 30 years now the area of economics known as Public Choice has demonstrated that government decisions can be viewed as rational choices made by individuals to maximize their well being. They may not focus on profits or share prices, but people in government do focus on budget maximization, personal benefits, and power. As the power of the federal government has expanded, the role of big business in influencing government through these channels has been magnified. ( this is referred to as ‘rent seeking’ )

Public Choice Theory allows us to be more precise in evaluating public policy alternatives by looking at the incentives of government and big business and the institutions that influence their behavior.

There are a lot of interesting things going on in Agriculture. Alternative fuels, the farm bill, animal waste,organic agriculture, biotechnology, global warming, concerns about sustainability etc. Many of my posts focus on how markets deal with these issues.

However, we make choices and markets function in an environment heavily influenced by government. I have briefly touched on governmental issues in some of my posts. Those dealing with type two errors and the tragedy of the commons were two examples. It is my goal to address governmental affairs more formally in some of the posts that will follow labeled 'public choice'. I will still throw in updates related to energy and natural resource issues, but it will be useful to have the public choice context because the analytical framework it provides is necessary for effective government policy in these areas.

Monday, August 06, 2007

You may have heard the headlines about the resulting increase in food prices from demand for ethanol. There is actually much more to the story.

It is true that in this country, we eat corn, wheat, and soybeans. We may not directly consume them, but they are our staples. We used to devote about 60% of our corn crop to animal feed ( meat & milk consumption), 20% to exports, 15% to food byproducts and direct consumption, and the remainder for industrial uses and ethanol. Now almost 18% of our corn crop is being devoted to ethanol production. Of course this will put upward pressure on the price of corn. And as people divert acres away from wheat and soybeans it will put upward pressure on the prices of those commodities too. So it would seem palpable that food prices would follow the trend. They have to some degree.

“Increasing petroleum prices have about twice the impact on consumer food prices as equivalent increases in corn prices”

Compared to energy, even corn prices impact a much smaller segment of the food market. Advancements in genetics and technology are allowing producers to continue to meet our demands for both food and fuel with minimal impacts on price. This year the markets have responded via producers planting the largest corn crop since WWII. There are projections of a record crop of 11 billion bushels this fall.

I admit that much of this demand and the response to it stems partly from a 51-cents per gallon tax credit, and a 54-cents-a-gallon tariff on imported ethanol, and ethanol based oxygenate reqquirements for all gasoline. As I mentioned in a previous post, gasoline demand and production is based largeley on governent subsidies and regulations as well. The point is that the market is responding given the circumstances and the crisis is not what many are making it out to be.

Tuesday, July 31, 2007

According to many , the harms from cigarette smoke are well known and scientifically documented. Many on both sides of the issue have stated that they purposely avoid restaurants that allow smoking by eating elsewhere.

One might compare bans on smoking to restaurant inspections, bans on leaded paint, or drunk driving laws, all of which are implemented to protect the public from harm.When should government get involved? One case is when individual decisions harm others without compensating them. This is what economists refer to as a ‘negative externality.’

In some cases, if individuals can come to an agreement on their own through property rights, exchanges, contracting, or some other type of arrangement, government intervention may not be necessary. However, in the case of drunk driving, it is not possible for other drivers to know who is intoxicated and who isn’t. No agreement can be made to avoid harm. In purchasing a home, one may not be able to contract for the effect of lead poisoning if they are unaware about the use of lead paint. When eating at a restaurant, it may not be possible to know if food was handled properly before eating. In these cases when there is both an information and bargaining problem, the theoretical argument for statutory action by government is often accepted.

When it comes to making an argument for implementing a smoking ban, two important questions should be asked. Is there sufficient information available so that when citizens enter a restaurant they can recognize the presence of harmful second hand smoke and understand the danger it poses? If so, does the market provide a way to easily avoid it? If you have trouble answering this, re-read the first paragraph.

A final excerpt from an e-mail I received encouraging me to oppose new farm bill legislation.

“When you think of family farmers, do you picture comedian David Letterman or former NBA star Scottie Pippen? How about billionaires like David Rockefeller and Microsoft co-founder Paul Allen?”

In a previous post I addressed the issue of the family farmer.

“Local governments and fad enthusiasts may be trying to capitalize on the romanciticism of old fashioned agriculture to promote tourism via pork barrel spending. I think this undermines those legitimate producers interested in transitioning from tobacco to produce, and tarnishes the image of the modern producer and the self-reliance that modern technology makes possible.”
‘FARMERS’ MARKETS” March 23, see ‘agricultural economics’ label

Here are some additional key facts regarding farm programs:

1) Total spending on agriculture comprises 1% of the federal budget. Of that amount, less than half is allocated to the producer. The bulk of the rest is spent on aid to the poor and school lunch programs.

2) Despite that the funding is a small proportion of total federal spending, there are still market distortions that result from these programs.

One Iowa State University economist has pointed out that up to 1/3 of the price of farmland can be attributed to government payments. In fact many producers have expressed that government programs have increased the price of land and impeded their ability to expand their operation and remain competitive.

In conclusion, to have a consistent position opposing the farm bill you have to be dedicated to embrace modern science and biotechnology and be opposed to creating market distortions.

Friday, July 27, 2007

Another note related the e-mail in opposition to the proposed farm bill.

“Moreover, by disproportionately subsidizing corn, wheat, and soy, the current Farm Bill encourages us to eat cheap, unhealthy, and fattening processed foods instead of fresh fruits and vegetables. As writer Michael Pollan puts it, "the reason the least healthful calories in the supermarket are the cheapest is that those are the ones the Farm Bill encourages farmers to grow."

It is true that many versions of farm programs reduce risk and increase the price farmers receive for their crops. This would have a supply effect making corn, wheat, soy, and meat products less expensive. However, commodity prices make up a very small proportion of the price we pay for food in the grocery store.

Farmers grow corn, wheat, and soybeans because they are food staples, not because congress legislates it via farm programs. Fruits and vegetables, which are not staples but make healthy supplements to our diets, will always be more expensive because they are riskier and more labor intensive among other things. Farm programs that encourage grain crop production have no effect on this.

Thursday, July 26, 2007

I received an email recently from someone opposed to the farm bill. Part of their critique was as follows:

“Amazingly, they're some of the people receiving your taxpayer dollars in the form of crop subsidies, which overwhelmingly benefit absentee landlords and big agribusiness at the expense of farmers in America and the developing world who are struggling to feed their families.Here’s one example: In West Africa, millions of desperately poor people farm cotton to make a living, often surviving on less than $1 a day. But our cotton subsidies make it more difficult for these farmers to survive by artificially lowering the price of cotton in violation of international agreements…..”

It is true that cotton subsidies may give our producers an advantage over poor farmers in less developed countries. I understand the author’s critique. On the positive side, advances in biotechnology have if not leveled the playing, certainly improved the standards of living, public health, and productivity for poor farmers.

If we are to believe that the farm bill will be detrimental to small farmers and the developing world, and oppose it on those grounds, then should we not favor a technology that benefits the 3rd world?

Ironically, I would bet that those opposed to the farm bill are also opposed to the promotion of GM (genetically modified) food crops in developing countries. Even people in developing countries that may complain about unfair trade often have their own ironic opinions related to this issue. Zambian President Levy Mwanawasa has been quoted making the statement that he "would rather let his people starve than eat anything 'toxic" - referring to biotech foods vs. conventional and organic. His, and other government’s antitrade policies are often cloaked in concern for ‘food safety’ and other rhetoric.

Monday, July 23, 2007

Not only did Norman Borlaug won the Nobel Peace Prize, but now he has been awarded the Congressional Gold Medal.

Rachel Carson is often lauded as an environmental savior when Norman Borlaug has done so much more with hard science and made truly revolutionary accomplishments with regard to environmental sustainability. Yet, Silent Spring is more likely to make a college or high school course reading list than “The Man Who Fed the World: Nobel Peace Prize Laureate Norman Borlaug and his Battle to End World Hunger.”

Friday, July 20, 2007

According to a recent article on the Telegraph (U.K.) eating beef produces more pollution than driving. It is stated that producing 2.2 lbs of beef generates as much greenhouse gas as a car traveling 50 mph for 155 miles. The article ends with a quote stating:

"Everybody is trying to come up with different ways to reduce carbon footprints, but one of the easiest things you can do is to stop eating meat."

Should we really stop eating beef? It is a very nutritional part of many people’s diets and difficult to match. On average 20 of the 29 lean beef cuts have only 1 more gram of saturated fat than a skinless chicken breast per 3-ounce serving. In additon beef is not only low fat, but also very nutrient-rich. Compared to a skinless chicken breast, beef has eight times more vitamin B12, six times more zinc and two and a half times more iron.

Cars are very necessary for transportation, and we know that they produce greenhouse gases, but we don’t stop driving altogether. We continue to produce more and more fuel efficient cars instead. The same can be said for beef production.

Beef production per cow has increased about 185 pounds since the mid-1960s to 585 pounds per cow in 2005. According to the data in the telegraph, for every cow that goes to slaugheter today vs. 30 years ago, increased efficiency in beef production is equivelant to removing from the highway 84 cars traveling 50 miles per hour for 155 miles. ( 185/ 2.2= 84)

Improvements in nutrition, genetics, and management will only improve the ‘environmental footprint’ of beef production. Beef production has never been greener.

Tuesday, July 17, 2007

I’ve recently commented on the above article from the CS monitor. It also contained an additional statement that I take issue with, at least theoretically.

"Any sort of shock to corn yields, such as drought, unseasonably hot weather, pests, or disease could send food prices into the stratosphere. Such concerns are more than theoretical. In 1970, an outbreak of a fungus destroyed 15 percent of the US corn crop.”

I think they want to make the point of how tight supply and demand conditions are and how easily we could see price spikes to ration shortages in case of a drought or some other disaster. (as a result of corn diverted to ethanol production)

But the point is that the corn blight of the 70's was the result of common male sterile inbreds being used to produce most of the hybrids grown then. This common genetic background made almost the entire corn crop susceptible. Most companies have learned their lesson and genetic diversity among corn hybrids has proliferated to meet diverse grower needs since then anyway. Between diversification in crops planted and the risk management tools available in the market, disasters like the corn blight in the 70’s are really much more theoretical than the CS Monitor implies.

Wednesday, July 04, 2007

“People like the freedom to choose their lifestyles, what they consume and when they consume it,” observes Attari. “However, the environment is a ‘commons’ that we share with other citizens of the world, and when individual choices start negatively impacting others, we need to understand how to change or alter those behaviors.” http://www.prism-magazine.org/apr07/tt_01.cfm

Whenever the cost of one’s behavior is not factored into a price at which a choice can be valued, a commons problem exists. This is in essence what we get from Hardin ( ‘The Tragedy of the Commons’) after applying a little basic economics to his reasoning.

However, according to Coase (‘The Problem of Social Cost’) with the establishment of property rights and markets (bargaining) the externality of the commons can be internalized. Behavior is changed or altered to account for the negative impact our choices impose on others. Demsetz (Towards a Theory of Property Rights) goes on to say that property rights often evolve as a means to internalize externalities. Sometimes given the current state of technology, the costs of developing property rights and markets are greater than the benefits that would arise. However, with technological development, these cost structures change and new options become available. Today we can see how technology has allowed for many externalities (or commons problems) in agriculture to be internalized with examples such as biotechnology and GPS. The article linked above focuses on how engineering can contribute to this end.

The literature referenced above may be broad, but it opens the door for many applications. It is certainly not as narrow and limited as the much older line of reasoning developed by Pigou, which advocates changing and altering behavior based on taxes or command and control governement regulations.

Tuesday, June 26, 2007

In addition to talking about the benefits of biotechnology in Africa, it makes the point that biotech crops are not as extreme as many of the foods that we have been eating for decades- including conventional and organic crops. Most all of the modern rice and wheat hybrids that we consume today have been developed using a process called Gamma Ray Mutation which involves using radiation to create desirable mutations in plants. These foods have never been tested for long-term health or environmental effects and have been accepted for decades by the general public and organic food consumers.

A recent article in the Economist reviews other techniques that use thermal neutrons, X-rays, or ethyl methane sulphonate, ( a harsh carcinogenic chemical) to accomplish the same end.

Zambian President Levy Mwanawasa is quoted making the statement that he "would rather let his people starve than eat anything 'toxic" referring to biotech food imports.

Friday, June 22, 2007

According to recent research published in the Proceedings of the National Academy of Sciences researchers have discovered another possible cause of CCD. This time it’s not mites but microorganisms from the small hive beetle, which has been introduced into the US and Europe from Africa.

"Beetles are scavengers and their job is to clean up. In the case of the small hive beetle, it uses a fungus to digest left-over pollen, from which it gets its nutrients. This fungus causes fermentation, in effect causing a change in the chemistry in the hives. Since bees are very sensitive to such variations, they eventually abandon the hives"- Dr Baldwyn Torto.

What is curious is that the beetle and the fungus it carries has no effect on African bee hives. African bees have some unknown mechanism for dealing with this.

"Knowing what allows African honeybees to survive attacks under the tough tropical conditions, and introducing these components into European honeybees, might be a step towards resolving the CCD," says Dr Torto.

Scientists may be able to identify a marker for these traits and develop a breeding program to incorporate this mechanism into our bees. If the mechanism is very specific, direct molecular genetic modification may be the solution. It might very well turn out that instead of being the cause, biotechnology will be the solution to CCD.

Monday, June 18, 2007

“People like the freedom to choose their lifestyles, what they consume and when they consume it,” observes Attari. “However, the environment is a ‘commons’ that we share with other citizens of the world, and when individual choices start negatively impacting others, we need to understand how to change or alter those behaviors.”

The phrase ‘tragedy of the commons’ was first used by Garret Hardin in a 1968 issue of Science.

To illustrate, in the case of cattle grazing on public land, it is in the interest of the cattle owner to place as many cattle as possible on the land. Of course too many cattle will result in erosion and deterioration in forage quality, but this cost is shared among all grazers. The grazer does not bear the full cost of grazing an additional animal, but receives the full benefit. Each grazer acting in his own interest results in the degradation of the ‘commons’ for everyone.

Whenever the cost of one’s behavior is not factored into a price at which this tradeoff can be valued, a commons problem exists. This tragedy is unnecessary, if we are willing to embrace legal systems that provide for property rights and free markets.

Many of the ‘commons’ problems that Hardin cites in his article such as polluting the commons with insecticides and fertilizer have much been mitigated with modern technology and markets. Many of my articles regarding free market agriculture and biotechnology explain how this has come about.

Friday, June 15, 2007

If you look at tax and program subsidies, defense of oil interests, environmental, and health costs, the real cost of gasoline may be much higher than just the price we pay at the pump. Some estimates of these external costs are between 20 and 70 cents more.

According to the center for technology assessment, about $9-18 billion dollars worth of tax breaks are provided for gasoline production and use. The defense department allots $55-$96 billion per year to protect petroleum resources across the globe.

I’m not necessarily advocating increasing the price at the pump by increasing gas taxes to reflect these costs. However, if these costs were factored into the price of gasoline, it appears that the gap between the real cost of ethanol and the real cost of gasoline would narrow significantly even after the subsidies to ethanol were removed.

Friday, June 08, 2007

If not biotech crops or industrial agriculture, then what could be causing CCD? There is plenty of research pointing to lots of other factors.

An entomologist at the University of West Virginia contends that the issue is mites. He has developed a product that consists of lemon grass and spearmint that seems to be protecting hives. Many studies suggest that a protozoan parasite called Nosema ceranae may be playing a role. Another team of scientists at Edgewood Chemical Biological Center and University of California San Francisco have identified a virus that may be responsible.

It is just too early to start pointing fingers at just one thing. If it turns our to be transgenic crops, then this will be the first negative impact ever cited! And of course, because transgenic crops are produced by making small precise changes in plants, they can likely be tweaked to alleviate the problem.

Monday, June 04, 2007

Are minimum wages really effective at alleviating poverty? A few weeks ago Walter Williams wrote a fact filled column regarding minimum wages. The facts reveal that minimum wage increases actually prove to be more beneficial to big business and the working middle class as opposed to the working poor.

The following facts seem to shed light on many of the popular myths about why we should raise the minimum wage ( either at the state or federal level).

1) after 3 years 85% have found better paying jobs, or have recieved raises

2) only 5% of minumum wage earners are below the poverty line, while almost half have come from families earning $60,0000 or more per year.

3)80% of the people earning minimum wage have no dependents. They are either single, or a working couple with no kids. A vast number are aged 16-25.

Big business benefits because they are better able to manage the increased costs and disruptions to the labor market that result. Smaller businesses become less competitive. In the 90’s when we raised the minimum wage we saw an age of small towns becoming ghost towns while Wal-Mart dominated.

Friday, June 01, 2007

In a recent Christian Science Monitor article, many good points were made about the effects of ethanol on corn prices. I’m not sure every point was on the mark however.

"..in Mexico, where corn is a staple food, the price of tortillas has skyrocketed because US corn has been diverted to ethanol production. "

It is my understanding that another major issue with tortilla prices (food grade white corn) is the lack of biotech varieties. There have not been enough biotech white corn varieties approved for human consumption, making these crops much more difficult and expensive to grow for our producers, so few are willing to grow it anyway. As a result, white corn accounts for less than 1% of US corn production, and already trades at a premium.

Further, even with NAFTA, there are trade barriers that prevent US corn producers from exporting white corn to Mexico. Even in the case of drought and severe shortage over- quota tariffs are quite steep.

Now I also understand that increased corn prices may be leading producers to destroy agave crops- used for tequila. Would the price of corn in Mexico be so high if they could relieve market pressure by importing ?

If ethanol has anything to do with the current plight of Mexican food prices, it is only adding to the misery created by previously existing anti-free trade policies.

Tuesday, May 29, 2007

Before everyone jumps on the bandwagon of laying the blame for Colony Collapse Disorder (CCD) on modern agriculture and transgenic food, lets look at some recent research on the issue. From the University of Ilinois Extension service I found a great commentary on the likelihood of the much used Gaucho (imidacloprid) product being the culprit.

“However, even though imidacloprid is systemic and moves through the plant, it is known to not get into the flowers of a number of plants. With bees primarily visiting flowers, there are questions as to how the bees would pick up the imidacloprid. Another question is when the honey bees pick up the imidacloprid. Many imidacloprid-treated crops finish flowering by midsummer, allowing time for seed or fruit to be produced and ripen before frost. Honey bees tend to feed in late summer and fall on late-season flowers such as goldenrod and native asters. These plants tend to be most numerous in noncrop areas where insecticides are unlikely to be applied. If the bees died earlier in the season from visiting flowering crops, beekeepers surely would have noticed this when they collected honey from the hives.”

If you recall the refuted study that came from Cornell Univeristy a few years ago you will remember Bt genetics have already been prematurely blamed for killing monarch butterfly. Now some are suspecting that Bt corn is the culprit in CDD. Let’s see what the experts from the University of Maryland have to say:

“The endotoxins currently expressed in Bt corn (Cry1 types against caterpillars; Cry3 types against beetles) are not biologically active against hymenopteran insects such as the honey bee, nor do the CCD symptoms resemble those expected in Bt intoxicated organisms. Exposure is also very low because the expression of endotoxins in pollen is barely detectable in most Bt corn hybrids and corn does not produce nectar. For these reasons, bees are not commonly found foraging in corn fields.’

Note, imidacloprid is one of the safest products introduced in decades. To restrict its use would either mean a switch to more lethal chemistries or organic methods that also may have questionable effects on the environment- recall organic producers broadcast the Bt toxin over their crops and kill all insects whether they are pests or not. The environmental benefits from Bt genetics are numerous as indicated in many of my previous entries. Restricting its use would be detrimental to the environment and public health as well. Let’s get to the bottom of CCD instead of trying to push an anti biotech or anti-agricultural agenda.

Thursday, May 24, 2007

As the Washington Times reports, yesterday the house passed a bill to make price gouging a federal crime. This is an example of 'doing something and accomplishing nothing.' The enforcement mechanisms would only kick in if there was a national emergency such as hurricane Katrina. Of course, during times like this ,that is when price rationing is most crucial. As I mentioned last year ( November 9, 2005-Gas Prices II-Unspoken Miracle), it was a miracle that we got through that crisis and were still able to find gas at the local station.

Correctly reasoning, the White House claimed this would "bring back long gas lines reminiscent of the 1970s." If you know your history and economics you will recall that those lines were created by governement regulation. They were not the direct result of an energy crisis. The Federal Trade Commission has found little evidence of price gouging and also testified against the legislation. President Bush vowed to veto the legilsation if it passes in the Senate.

Tuesday, May 22, 2007

The above link should take you to a related intersting blog link that I found at the Knowledge Problem blog. We've all observed the tremendous increase in 'nominal' gas prices recently, and nominally they have reached an all time high. Adjusting for inflation, however, gas still is not as expensive as it was in the early 80's. If you look at the percentage of household income spent on transportation- miles traveled- ( a factor that even inflation adjustment does not account for) you will find that even for the lowest income earners, travel is still cheaper today than it was in 1981.

It is amazing what advances in technological progress and economic growth can do to cushion the effects of major problems. Although travel costs have not reached a historical peak, they may be on their way if increasing 'nominal' prices are any indication, and as I have said before, the problem deals mainly with the failure to increase refining capacity in over 30 years.

Saturday, May 19, 2007

This excerpt by Tim Haab was taken from the environmental economics blog- see link under 'environmental blogs.'

"Supplies are decreasing--both temporarily through unexpected refinery shut-downs and permanently through stock depletion. Demand is increasing--both in the U.S. and worldwide. Both of these will cause gas prices to rise and that's good. If gas prices don't rise, we will consume gas even faster and run out sooner. "

He describes the situation well. But what should be done about it. Windfall profit taxes as some of our presidential candidates are proposing would only discourage more refining ( and may actually even discourage investment in alterantive fuels). Setting price caps would counter the rationing effect of prices, and generate longer lines, violence, or closed gas stations like in the 70's. In the short run, the only relief for consumers that makes sense is repealing gas taxes. In the long run we have to focus on decreasing demand- via alternatives- and we should focus on increasing supply by buidling more refineries.

Thursday, May 17, 2007

I recently watched an infomercial featuring Wal-Mart and the contributions that it is making to society. This was obviously a corporate produced marketing film, but it did point out many good things about Wal-Mart that were true. I do have an issue with one aspect dealing with sustainability.

Apparently in some stores Wal-Mart is introducing lines of clothing produced from Organic Cotton. From the corporate web site:

“So, we expanded our organic practice to include select bath, bed and baby products. From just these few orders in a limited number of stores, the Organic Exchange has informed us we will have saved 50,000 – 60,000 lbs of pesticides, herbicides and synthetic fertilizers and other chemicals from being used, and have become the largest single purchaser of 100% organic cotton products in the world.”

Unfortunately, Wal-Mart does not have all the facts about agricultural sustainability. They may have saved 50,000-60,00 pounds of synthetic pesticides, but what about the toxic biological controls used in organic production such as pyrethrum, neem, sabadilla, and rotenone that government regulators don’t even track data for. In citing this data, is Wal-Mart comparing only conventional cotton to organic? What about the environmentally superior biotech varieties of Bt and Roundup Ready cotton?

All of the advantages that Wal-Mart is seeking to exploit from organic food are available via biotech cotton. As noted in previous biotech entries there are many advantages to these technologies in relation to environmental sustainability that organic production cannot provide. ( See 7 reasons why you should support GM food, May1, 2007, Bt Cotton & Environmental Health, or click on biotech label at the end of this entry). While organic product promotion is most likely just a marketing and PR ploy by Wal-Mart, and involves just a limited array of the products they have to offer, they are now the single largest purchaser of 100% organic cotton products.

As a result, because Wal-Mart deals in such large volume, Wal-Mart may be doing more harm than good when it comes to the environment in their decision to buy and sell organic.

Friday, May 11, 2007

In a previous entry I noted that research seems to be mixed with regards to the energy balance of ethanol production. That may turn out to be dependent on the layout and location of the particular facility with relation to the users of by-products.

Currently in Meade Nebraska an ethanol plant has started production in conjunction with a cattle feedlot. In this operation 30,000 head of cattle will supply manure that will be used to create methane gas via an anaerobic digester.Methane is 21 times more powerful than CO2 when it comes to heating the atmosphere. So instead of being released into the atmosphere this gas will be used to operate the ethanol plant instead of using natural gas. The residual of the grain used for ethanol would then be used as cattle feed and the residual from the manure digestion could be used as fertilizer for the supplying corn crop. All of this implies less petroleum use in ethanol production, swaying the energy balance to the positive, and perhaps indicating economies of scope in corn, beef and ethanol production.

Wednesday, May 09, 2007

According to David Pimental of Cornell University, the production of ethanol requires almost 30% more energy to produce than it provides as a fuel. Another study from UC Berkeley concluded that ethanol is less fossil fuel intensive that gasoling production, but has greenhouse emisisions similar to gasoline. Finally a researcher at MIT reports a slight advantage for gasoline, but one that can easily be overcome via technological breakthroughs in the near future. According to research from a Proceedings of the National Academy of Sciences study ethanol yields 25% more energy than the energy invested in its production, whereas biodiesel yields 93% more.

So it seems the jury is still out on the energy balance of ethanol, with a slight advantage on the positive side.

Thursday, May 03, 2007

The latest publication of BG-Green-Zine ( a local mag about making Bowling Green more sustainable) just reported that it takes 5200 gallons of water to produce 1 lb of beef, and encouraged a reduction in ( at least factory farmed) beef. It encouraged the use of organic, family farmed, local beef. This was among a number of tips for every day conservation. No evidence was offered that would indicate less water use in the case of organic or local beef production, so I’m not sure why it would be superior with regards to water usage.

Green-Zine is not the first to cite the 5200 gallon figure. Many groups have used it, making such claims as people consume enough beef to float a battleship in terms of the associated water input required to produce it. I did find a 1978 study on my own that corroborated the 5200 figure, but also found studies with numbers 2500, 840, and UC Davis research citing 441 gallons of water per pound of beef. The NCBA ‘National Cattleman’s Beef Association lists 435 gallons as the official estimate. (one group criticized this research because one of the researchers wore a cowboy hat-indicating industry connections). As indicated in my previous entries on beef, beef production is more environmentally friendly than ever before.( see 'beef ' label at end) If it is true in 1978 that it required 5200 gallons of water to produce 1 pound of beef, then in a worse case scenario where it would require 2500 gallons of water, beef production is about 200% more water-use-efficient than 28 years ago. If the NCBA figures are correct, then beef production is 12 times more water efficient than 28 years ago.

These numbers should only improve with the introduction biotech feed crops that are more drought tolerant and require less water. I doubt that the improvements in organic production will keep pace with the recent advancements we’ve seen. So, if there ever was a time to eat beef, now is it! The environmental foot print is smaller than ever.

Explanatory Notes: Roundup Ready technology has allowed for glyphosate herbicide to substitute for 7.2 million pounds of other chemicals that are more toxic and persistent in the environment. Bt expressed in plants is much safer than organic broadcast Bt, sulfur, copper, or conventional synthetics. Bt and glyphosate resistant varieties make strip tillage, no- till, and reduced tillage practices, as well as crop rotation more viable and profitable. These practices improve soil conservation, require less fossil fuel use, reduce greenhouse gas production, and complement carbon sequestration efforts as opposed to tillage practices of organic and conventional agriculture. By using safer more precise chemicals combined with better genetics, crop yields are optimized disturbing less land and maintaining more diversity among both pest and non pest populations. The complementary relationship between reduced tillage, carbon sequestration, and the ability to produce carbon credits is certainly something to consider if we are to ever implement Kyoto style emissions standards.--------------------------------------Sources:Agricultural Outlook ERS/USDA Aug 2000Leonard, Roger, LSU Agricultural Center and Dr. Ronald Smith, Auburn University.Nelson, Gerald C. “Genetically Modified Organisms in Agriculture: Economics and Politics.” San Diego Academic Press 2001. Preston, Christopher. “Peer Reviewed Publications on the Safety of GM Foods. Results of a search of the PubMed database for publications on feeding studies for GM crops.” Senior Lecturer in Weed Management,

Tuesday, April 24, 2007

The recent Massachusetts v. EPA decision concluded that the EPA has authority to regulate CO2 emissions. It is now up to the EPA to determine if there is truly a link (empirical vs. theoretical) between anthropogenic CO2 and global warming. It also must determine if the problem is serious enough to devote its resources to developing standards for CO2 emissions.

Some are urging congress to pass legislation to reduce CO2 emissions by 80% by 2050. A first step could involve corporate average fuel economy (CAFE) standards. How many lives are worth how many tons of CO2 reduction? The National Academy of Sciences 2001 report on CAFE standards estimates that the lethal impact of CAFE related changes in automobile designs results in the loss of 1300-2600 lives per year. Ford's share of the blame for the Explorer/Firestone debacle can largely be linked to CAFE related factors. Amendments to the Clean Air Act brought us the poisonous oxygenate-groundwater pollutant MTBE. These are just some instances of what could result from an overzealous reaction.

Legislated CO2 reductions that slow economic growth would disproportionately affect low-income people. This legislation also has the potential to create ‘rent seeking’ opportunities for big business. Enron was a top corporate supporter for the adoption of the Kyoto Treaty because of the expected profits that would result. When California was developing regulations for reformulated gasoline, Unocal influenced the legislation to mirror some of its own refining patents.

Instead mandating the pollution of our groundwater with energy additives, increasing the fatality rate in automobile accidents, or creating profit opportunities for big business, perhaps a better approach for dealing with climate change or any environmental problem is to develop resilient market based economies that are able to invest in the technology necessary to adapt to ever changing resource constraints.

Monday, April 23, 2007

In 1632, Aristotle’s model of the universe that maintained the earth as the center was the ‘consensus’ view of the time. Galileo was labeled as a heretic for his heliocentric theory. Although his ideas came to be accepted in later centuries, Aristotles views remained the ‘enforced’ consensus for a long period of time. Consensus is supposed to be the result of free and liberal thinkers arriving at the same conclusions, deriving those conclusions from repeatable methods of inquiry, or in other words the scientific method. Today, more emphasis seems to be placed on consensus building vs. scientific inquiry. Those that challenge the status quo view of anthropogenic global warming are labeled ‘holocaust deniers’ and some are even threatened by the loss of their job. Jerome Scmitt, president of NanoEngineering Corporation gives a great take on this issue commenting on the American Thinker blog.

“The dawn of the 21st century sees relentless strident attempts to enforce consensus about global warming theory. These modern inquisitors, replete with Supreme Court rulings, brand "deniers" of impending apocalyptic global warming as heretics who lack blind faith in the theology of infallible computer models. Today's Galileos are being threatened with loss of their positions, credentials and titles. Foisting theories upon scientists and the public by means of verbal persuasion, elections, court orders, or intimidation is the opposite of the scientific method of determining the truth.”

Monday, April 02, 2007

Advances in biotechnology have made new industrial biotech processes possible. They allow the use of renewable resources for ingredients which decrease costs and the impact on the environment. They often also reduce the use of petroleum-based energy sources, cut greenhouse gas emissions and even reduce water use.

Bio-based enzymes and polymers derived from GM plants lower the amount of green house gasses emitted and release fewer toxic chemicals into the air and water. The resulting products are more durable and often biodegradable.

Monday, March 19, 2007

Type II error bias is not limited to just the FDA. In the April 2006 journal Public Choice Russel Sobell and Peter Leeson explain that type II error bias played a role in the delayed response of the federal government after hurricane Katrina.

Let’s say our government leader finds them self in the following predicament. After the destruction and the levees have broken someone has to make the decision to send in relief workers. However there are risks. Disease infested water, collapsing buildings and roads, roaming bandits, toxic chemical exposure etc. If our leader sends in workers and they meet a terrible fate, the consequences are on his shoulders. Later the media would hang him over sending our brave heroes in harms way.

Given limited information, here is the model in the context of hypothesis testing:

If on the other hand, our government official decides to wait, until he has better information he could avoid this. The consequences may be the lives of hurricane victims, but the blame can be shared with nature.

Type II Error: Over cautiousness that prevents a quick response by relief authorities

In general this is one of the explanations given in the Public Choice article explaining the federal government’s response to Hurricane Katrina. It is also one of the reasons in general that many of our leaders at the federal, state, local, levels fail to make timely decisions or provide leadership when needed.

About Me

My primary interests are in applied econometrics with applications related to genomics, nutrition, health, and the environment. I have a quantitative and analytical background in the areas of applied economics and statistical genetics. I leverage my training with experience in machine learning and predictive modeling using SAS, R, and Python to solve problems. I can understand and produce peer reviewed research and discuss the application with a scientist, sales representative, or the customer whose problem ultimately drives the analysis. I can code my own estimators, execute SQL queries, parse text files, and visualize a social network.